Although the British pound moved higher against the greenback in the previous days, GBP/USD remains in a consolidation slightly above important support line. Will we see a breakdown below it and a test of the October low in the coming days?

In our opinion the following forex trading positions are justified - summary:

• EUR/USD: short (a stop-loss order at 1.2250; the initial downside target at 1.1510)
• GBP/USD: short (a stop-loss order at 1.3773; the next downside target at 1.3000)
• USD/JPY: none
• USD/CAD: none
• USD/CHF: none
• AUD/USD: none

EUR/USD

Earlier today, EUR/USD extended gains, which approached the exchange rate to the previously-broken green line based on the August and October lows. Similar price action we saw in the previous week, but despite that improvement currency bulls didn’t manage to break above the green line (the nearest resistance and the neck line of the bigger head and shoulders formation), which resulted in further deterioration. Therefore, in our opinion, as long as there is no invalidation of the breakdown under the green line one more downswing and a test of the 38.2% Fibonacci retracement is likely.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Profitable short positions (with a stop-loss order at 1.2250 and the initial downside target at 1.1510) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

GBP/USD

Looking at the weekly chart, we see that the overall situation in the medium term hasn’t changed much as GBP/USD is trading in the yellow consolidation inside the brown rising trend channel, which makes the broader perspective a bit unclear.

Will the daily chart give us more clues about future moves? Let’s check.

From the daily perspective, we see that although GBP/USD rebounded after a drop to the green support line (the lower border of the brown rising trend channel seen on the weekly chart), currency bulls didn’t manage to push the pair higher and the exchange rate started consolidation (marked with green). This means that as long as there is no breakout above the upper border of the formation, one more downswing and a re-test of the October lows is likely.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): Profitable short positions (with a stop-loss order at 1.3773 and the next downside target at 1.3000) are justified from the risk/reward perspective. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

USD/JPY

Quoting our Monday alert:

(…) the yellow resistance zone (…) stopped currency bulls, triggering a pullback, which took USD/JPY under the May and July peaks. Such price action suggests an invalidation of the tiny breakout above these highs, which could translate into a bigger move to the downside – especially when we factor in the medium-term picture.

(…) USD/JPY increased to the long-term orange declining resistance line. (…) it was strong enough to stop currency bulls in December 2016 and January 2017, which suggests that history may repeat itself once again and we could see another reversal and declines in the following week(s). Nevertheless, this scenario will be more likely and reliable if the exchange rate closes one of the following sessions under the upper border of the purple rising trend channel and the long-term red declining resistance line seen on the daily chart.

From today’s point of view, we see that currency bears pushed USD/JPY lower as we had expected. Earlier today, the exchange rate slipped under the upper border of the purple rising trend channel and the long-term red declining resistance line (both marked on the daily chart), which suggests a test of the October 31 low or even a decline to the lower border of the purple rising trend channel (currently around 111.83) in the following days.

Very short-term outlook: mixed with bearish bias
Short-term outlook: mixed with bearish bias
MT outlook: mixed
LT outlook: mixed

Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective at the moment. We will keep you informed should anything change, or should we see a confirmation/invalidation of the above.

Thank you.

Nadia Simmons
Forex & Oil Trading Strategist
Przemyslaw Radomski, CFA
Founder, Editor-in-chief, Gold & Silver Fund Manager

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